Key Takeaways

This recent FCA case highlights ASIC’s willingness to actively pursue litigation against credit providers who breach consumer credit legislation and fail to comply with AFCA determinations.

Credit providers should remain vigilant in ensuring compliance or can otherwise expect to face action by the regulator resulting in financial penalties, extending to directors.

Brief Facts

Lightspeed Finance Pty Ltd (Lightspeed) facilitated a loan by Mr Broomhall to Mr Birnie & Ms Ghalemi for the purpose of home renovations. The loan was secured by real property owned by Ms Ghalemi.

AFCA made a determination that Lightspeed had accepted a business purpose declaration from Mr Birnie & Ms Ghalemi, who were unemployed at the time, and that it knew the loan was not for business purposes.

AFCA found Lightspeed was required to comply with obligations under the National Credit Act (NCA) and a determination was made for:

a)   Lightspeed to pay Mr Broomhall an amount equal to the loan (within 14 days of Mr Birnie’s acceptance);
b)   Mr Birnie to then pay Lightspeed $43,485.45.  

The determination was accepted by Mr Birnie and binding on Lightspeed under the provisions set out in the National Consumer Credit Protection Regulations 2010.

Lightspeed failed to give effect to the determination. ASIC sought orders against Lightspeed and Mr Fitzpatrick for breaches of the National Consumer Credit Protection Act 2009 (Cth) (NCCPA), namely s47(1)(m) by failing to give effect to a determination of AFCA.

ASIC sought pecuniary penalties against Lightspeed and its director Mark Fitzpatrick as well as compensation for Ms Ghalemi for her loss of the property.

Judgment

The Court found that Lightspeed failed to comply with the AFCA determination and thus its obligations under its credit licence. Further, it found that Lightspeed’s sole director and responsible manager of its credit licence, Mr Fitzpatrick was knowingly involved in the contravention of the NCA.

The Court found Lightspeed breached s47(1)(m) of the NCCPA, by failing to give effect to AFCA’s determination being an obligation prescribed by regulation and Mr Fitzpatrick was involved in the contravention of s47(1)(m). A breach of s47(1)(m) is a contravention of a civil penalty provision.

In assessing an appropriate civil penalty, the Court had regard to the principles set out in Australian Competition and Consumer Commission v Dataline.Net.Com.Au¹ considering the nature, character, content and extent of the contravening conduct. It also noted the role of civil penalties is primarily for the ‘purpose of deterrence’.

Interestingly the parties submitted appropriate penalty orders to the Court which were accepted. The Court made an assessment of compensation.

Lightspeed and its director Mr Fitzpatrick were ordered to pay a total of $220,000, comprising of $20,000 in penalties, $150,000 in compensation to Ms Ghalemi and $50,000 for ASIC’s costs.

Implications

Complying with AFCA’S determinations is considered a central part of a licensee’s agreement to be bound by AFCA’s external dispute resolution scheme. Credit providers should expect appropriate action in the event that determinations are not complied with.